New Paper from NERA Economic Consulting Examines Implications of Recent Recalls of Products Made in China

20 February 2008

New York City/20 February 2008 -- Announcements of recalled products seemed to happen with unusual frequency last year. Many were connected to Chinese manufacturers, to the point where 2007 was dubbed "the year of China recalls" in the press. But did 2007 actually represent a new trend in product recalls, and what are the potential costs associated with these recalls? These questions and more are answered in a new paper from NERA Economic Consulting.

In "China Product Recalls: What's at Stake and What's Next," NERA Senior Vice President and Mass Torts & Product Liability Practice Chair Lucy P. Allen and Senior Consultants Dr. Renzo Comolli and Dr. Simona Heumann investigate the recalls in greater detail. The authors analyze trends in recalls over time and discuss how to estimate the economic impact associated with such recalls.

The authors use a market-based approach to estimate the actual economic impact of the 2007 recalls on a number of toy and pet-food companies. The results indicate that for some companies, despite the dramatic and frequent news stories, the net economic effect of the product recalls is insignificant. For example, the analysis of Mattel's recalls of 21 million toys in 2007, using the market-based simplified event study approach, yielded no significant economic impact on Mattel.

Among their other key findings, the authors reveal that there was an upward trend in US consumer product recalls from 2000 to 2007. In 2007, China accounted for 67% of recalls of consumer products in the US. In the toy segment alone, China accounted for 98% of the 2007 recalls, a dramatic increase from 1988, when China accounted for only 10% of toy recalls.

The authors also find that the presence of potentially hazardous levels of lead was the leading cause of the 2007 recalls of consumer products manufactured in China, and that the number of consumer product recalls related to potentially hazardous levels of lead grew exponentially since the year 2000.


NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a unit of the Oliver Wyman Group, an MMC company.

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